Exam 16: Measuring the Cost of Living

In a simple economy, people consume only 2 goods, food and clothing. The market basket of goods used to compute the CPI consists of 50 units of food and 10 units of clothing. a. What are the percentage increases in the price of food and in the price of clothing? b. What is the percentage increase in the CPI? c. Do these price changes affect all consumers to the same extent? Explain.

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Question 1

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a. The price of food increased by 50 percent [6-4]/4 x 100). The price of clothing increased by 100 percent [20-10]/10 x 100).
b. In 2002, the market basket cost $300 4x50 + 10x10); in 2003, it cost $500 6x50 + 20x10). The percentage increase in the CPI is 66.7 percent [500-300]/300 x 100).
c. Because the price of clothing increased relatively more than the price of food, people who purchase a lot of clothing and little food became worse off relative to people who purchase a lot of food and little clothing.

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

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Question 2

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Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

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Question 3

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For purposes of calculating the CPI, the transportation category of consumer spending includes the cost of

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Question 4

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today. If the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly wages of its workers by

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Question 5

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. If the nominal interest rate was 8 percent in 2010, then

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Question 6

If the quality of a good improves while its price remains the same, then the value of a dollar

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Question 7

Two alternative measures of the overall level of prices are

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Question 8

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

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Question 9

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

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Question 10

The GDP Deflator reflects

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Question 11

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

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Question 12

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2013 is the base year, then the CPI for 2013 was

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Question 13

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

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Question 14

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

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Question 15

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

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Question 16

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

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Question 17

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2006, then the inflation rate in 2005 was

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Question 18

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

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Question 19

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

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Question 20

Showing 1 - 20 of 545

Exam 16: Measuring the Cost of Living

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

For purposes of calculating the CPI, the transportation category of consumer spending includes the cost of

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. If the nominal interest rate was 8 percent in 2010, then

If the quality of a good improves while its price remains the same, then the value of a dollar

Two alternative measures of the overall level of prices are

During a certain year, the consumer price index increased from 120 to 132 and the purchasing power of a person's bank account increased by 4 percent. For that year,

Table 24-2 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. -Refer to Table 24-2. If 2013 is the base year, then the CPI for 2013 was

The GDP Deflator reflects

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. If 2013 is the base year, then the CPI for 2013 was

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

In a particular economy, the price index was 120 in 2012 and 130 in 2013. Which of the following statements is correct?

If the cost of transportation increases by 20 percent, then, other things the same, the CPI is likely to increase by about

With respect to the consumer price index, which of the following serves as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. -Refer to Table 24-5. If the base year is 2006, then the inflation rate in 2005 was

The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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